“Immediate short selling may well be followed by (creation of) long positions after a month with more clarity coming in,” he said.“Bad loans will escalate, but investors are likely to gain in the long run, say after two-three quarters.”

Amit Gupta, derivatives head, ICICI Securities, was unsure of the “short term” impact but added that in case the Bank Nifty rallied another 100 points to test the 25800, “shorts” in Bank Nifty futures and call options would be forced to cover their positions, enabling Bank Nifty to test 26000 this month.

That traders have created significant shorts in Bank Nifty is evident from the recent discount of Bank Nifty futures to the underlying Bank Nifty index. For example, on Feb 9, while near month Bank Nifty futures contract traded at 25356, the spot Bank Nifty closed at 25463.

Rajesh Baheti, MD, Crosseas Capital, a leading arbitraging and jobbing firm, expects the move to be positive but doubts whether it could have “material” impact, given that the markets were more “focused” on global market cues and on macroeconomic impact from the FY19 Union Budget on inflation and fiscal deficit.

Major support for Bank Nifty lies at 25,000 while resistance kicks in at 26,000-26,100 for the current month, options data indicate.

Private sector lenders including HDFC Bank, Axis Bank, ICICI Bank are the major constituents of Bank Nifty by weightage while the country’s largest lender the State Bank of India ranked fourth with more than 9.5% weight .

All other state lenders like Bank of Baroda, Punjab National Bank are way below the index with less than 1.5% ownership in the index.